Detroit files for bankruptcy

acmilano

NEW YORK (CNNMoney)Detroit filed for bankruptcy Thursday, becoming the nation's largest public sector bankruptcy. The move could slash pension benefits to city workers and retirees, and leave bond holders with only pennies on the dollar.The bankruptcy was filed by Emergency Manager Kevyn Orr and approved by Michigan Gov. Rick Snyder. Snyder said the financial condition of the city left him no choice.

"Now's our opportunity to stop 60 years of decline," Snyder said at a Friday news conference with Orr. "How long had this been going on and people were kicking the can down the road and not doing something? We're doing something."Snyder has said that 38% of the city's budget is being spent on "legacy costs," such as pensions and debt service. He said police take almost an hour to respond to calls, compared to a national average of 11 minutes, and that 40% of street lights in the city are turned off."Does anybody think it's OK to have 40-year-old trees growing through the roofs of dilapidated houses," Orr said.Related: 16 things that are wrong in DetroitBut public employee unions are sure to fight the move, charging that the city did not negotiate in good faith and should not be allowed to walk away from obligations made to employees and retirees.The Detroit Fire Fighters Association said it was "very disappointed" with the bankruptcy filing."We are working with other Detroit employees to form a unified coalition to address the financial concerns of Detroit," the group said. "Detroit's Fire Fighters will continue to protect and serve during this difficult time, regardless of the economic challenges."Related: Retired Detroit firefighter -- 'My pension is what I was promised'Orr already halted payments on about $2 billion in debt last month, saying the city needed to preserve its dwindling supply of cash. The city faces total liabilities of about $18 billion.Orr's reorganization plan calls for cutting $11.5 billion in debt down to $2 billion. That would mean that investors and retirees would receive an average of just 17% of what they are owed. Specific plans for the cuts are unknown at this time.No municipal bankruptcy has ever resulted in involuntary cuts to retiree benefits, said Michael Sweet, a California bankruptcy attorney."It's relatively easy to blow off a creditor. It's much harder when it's people who are the fabric of your community," he said. "You need a police force, you need a fire department. You're saying [to them] you're not worth what you were previously promised."Related: Casinos, not cars, are keeping Detroit afloatSweet said that case law on whether pensions can be cut this way is very limited, and it could take years for a court fight over such cuts to work its way to the U.S. Supreme Court. Given the poor state of funding for many public sector pension funds nationwide, "it's a big enough question, that (the Supreme Court) is where it likely will have to go," he said.When employees of a bankrupt business lose their promised pensions, the Pension Benefit Guaranty Corp. steps in and provides a minimal level of benefits. But that federal agency doesn't back pensions in the public sector.Related: Detroit bankruptcy filing came with only 5 minutes to spareRetirees and city employees say they can't accept cuts in their pension benefits."How am I supposed to live without my pension?" said David Sole, 65, after a protest in Detroit last month. Sole retired from the city's water department in January after 22 years.Investors say the bankruptcy will make it more difficult for cities and towns everywhere to raise the money they need to build bridges, schools and other infrastructure. It will also hurt municipal bonds held by individual investors.There are more than $1 trillion worth of bonds at risk, said Peter Hayes, head of municipal bonds at BlackRock. He said there will be a ripple effect nationwide.

Stephan90

Apart from the specific situation of Detroit, the downfall of the car industry, what happenend over the last decades is pretty much the unavoidable consequene of the debt-money-system, which all capitalist countries have. More cities, states and the country as a whole will follow for sure. The system is instable and must collapse and being reset every 70-80 years, because once the point of no return regarding the height of debts is reached, the mass of the people works and pays taxes just for the purpose of paying the debt interest of the public, while the money goes only to a few rich people, who lend the money to the public. It's like a vacuum cleaner, which drains all the money.

But in America the vacuum cleaner goes faster because the taxes on capital income are relatively low.

Detroit certainy gets a very needed debt cut now. So it's actually good news, I guess.

RoadRunner71

I know it's a more complex situation, but I'll still blame, in part, americans for buying that many imported cars. Hell, if you look most of the american cities the 70% of the vehicles are Japanese... However, I recently noticed that many of the plants that operated in Detroit were moved to cheaper countries such as Mexico, as well as the production of many of the parts of the vehicles.

By other hand, a big part of the middle-higher classes eventually moved to the surrounding residential areas, so the local commerce of Detroit began to decline. In addition, I've heard that Detroit has been a city with corruption in the political class. The corruption can tear down even an estate.

So how do you want the economy of a place grow in you're offshoring the industry who gives employment and therefore money and more jobs in subsequent sectors? This for those who say that the capitalism system works...

Now this is remainding me to what the EU, as well as the owners of many of the european big industries are doing, moving the industry to cheaper countries and being a f*cking corrupts. The closest example, the refund of the aid to the naval sector, which gives thousands of jobs. During the time the debate about this has been in the air, the ship orders in shipyards of Korea have increased a 60%. f*ck logic.

Backing to the Detroit subject, I feel really sorry for that city. Seeing how the cradle of the american motor, which that much means for me, is sinking is sad and shameful.

So it turns out that dumping a bunch of taxpayer money into private companies is okay, but doing the same to a public place where people live is unthinkable.

I hate to be seen agreeing with you, but you're right on the ball here. It's totally unfathomable that the US government have provided large subsidies to organisations in return for operating or centring themselves in Detroit when they're dependent on a public infrastructure the government seem totally unwilling to actually fund. That's so counter-intuitive it makes my eyes itch.

K20

How could richest country in the world allow such a thing,collaps of entire big city? I've been hearing stories about devastated city for years,how come nobody couldn't do something?

Beg your pardon?

i think he meant "they the biggest country, and vast resources and time and money to beat on other countries, but can't sort their own sh*t out"

OT: it is sad. i been reading the news on Detroit for a while. with all the abandoned homes and factories. i honestly blame the corporate companies and politicians. the city was build around manufacturing. then those factories moved else where, im assuming to cut costs. it left the areas jobless and money-less. and the politicians for not stopping it or putting some sort of legal entity in place. it could have been avoided.

its happening here in the UK. last week or so they announced the they're closing a Ford plant and moving it to Turkey, to cut cost. WTF are all those who work there going to do? costs are high due to greedy politicians milking the people for money. so people need the higher wages. governments need to lower taxes or something to bring manufacturing back.

MattDet

Since I live not far from Detroit, this has been exactly the most important topic on my local news media over the past week. In fact, I even lived in the city for a few years and I can't believe that it took this long for this to happen. I mean, here's a picture of the city from 1942:

And one of a typical inner-city neighborhood as it appears today:

both photos from Wikipedia

And they were taken only nearly 70 years apart!

The local news media is also reporting that two Michigan school districts are suffering similar financial problems, one of these is just a few miles to the west in Inkster. Man, is it crazy for me to live not far from all this? If this keeps up, I'm moving to Ganton!

anywho... it's much more complicated than that.just because there's a lot of money in the United States doesn't mean it's all public tax dollars. the vast majority of wealth in the US is private money.

and the tax-base in Detroit has been cut in half... at least.the city has lost so many middle-class residents that there's virtually no one left to balance the books after necessary municipal expenses. Detroit can't afford to pay it's state pensions which is where the trouble really starts.

I<3GTAV

Here in Cleveland, we have a saying, "At least we're not Detroit". That's going to be us in 10 years if we don't get our sh*t together. It's really sad, Detroit used to be the 4th largest city in America, and is now 18th. I'm hoping that Detroit gets out of this mess

stu

Gentrification isn't going to touch that city with a 10ft barge pole. It's just f*cked, good and proper. I've watched Animal Cops: Detroit, and even half the dogs were addicted to drugs and had high levels of teen pregnancy and gang violence. It's like New Orleans and Detroit are having a f*cking competition, in a north v south sh*thole-off. Similar to a dance-off, but with more poverty and degradation.

RoadRunner71

Gentrification isn't going to touch that city with a 10ft barge pole. It's just f*cked, good and proper. I've watched Animal Cops: Detroit, and even half the dogs were addicted to drugs and had high levels of teen pregnancy and gang violence. It's like New Orleans and Detroit are having a f*cking competition, in a north v south sh*thole-off. Similar to a dance-off, but with more poverty and degradation.

I don't think gentrification would be the best option to rise the city again. The Middle-lower classes are always the most affected by the problems gentrification brings, such as prices rising in both the land and products that leads these lower classes to leave. I think the solution would be bringing back the factories, instead of moving them to these countries were production is cheaper. And the same for Europe.

There are many huge mansions abandoned...

In addition, I read somewhere that Detroit was the american city with most abandoned skyscrapers.

Tycek

I've read an article about Detroit yesterday and this is very tragic story. City that came from population of 2 millions to 700 thousands, which most of lives in the suburbs, because they simply scared to go to the downtown. Medium time of waiting needed for cop car to come is 58 minutes and 2/3 of the ambulances in the city is out of order. Abandoned buildings are burning every night and drugged and homeless people are turning into animals running scared from the white people and living on piles of crap .

It shows a sad picture of today's USA, which is sticking its nose into other countries business, trying to control everything spending millions on surveillance systems and wars, but doesn't care about own yard anymore. It's sad that city that practically built today's USA is left in this condition, because other people's wars and cameras in every toilet are more important than one of the biggest cities and center of american industry.

Sheriff of the world wearing trousers with huge hole on his ass. Shame on you, people.

KaRzY6

the caucasian people move away and take all of the resources with them.

Oh yes, it's white man's fault that Detroit is bankrupt. I should have known, every problem is white man's fault. Seriously dude, how the f*ck can the white people take all the resources and leave the city bankrupt. The city was built on manufacturing. So the issue is the companies moving elsewhere to save money.

Twang.

Why isn't there a Fallout game set in Detroit yet? They don't even have to nuke the city, it already looks that way.

QUOTE (Tycek)

Quite ironic how they foreseen the future of Detroit back in the '80s. Sad that nobody saw that and did something before it was too late.

In the 80s, everyone's outlook on the future was bleaker than it is today. Crime rates were at an all-time high and they were in the middle of the worst recession before this one. Most of the USA did a turnabout on that front, but somehow Detroit missed the train.

My opinion: the city is too invested in the auto industry. Too single-minded. I live near a town in Minnesota that I like to call our state's mini-Detroit. Austin has two things: Hormel and rampant meth addiction. The company won't let any other industries move in to town and it has a stranglehold on the local economy. The city of 30,000 people hasn't grown since the 1950s (aside from all the SPAM-based attractions). There's also an abundance of illegal immigrants and non-English speaking workers more than willing to work for peanuts, ensuring that no one of any actual economic worth actually wants to live or work there.

The big three moving out may be a blessing in disguise. Manufacturing alone can no longer support a sizable city. If they continue to go down that route, they may stabilize but Detroit will probably continue to shrink until it's no longer considered a major city. One might wonder if their geographic location would even be favorable to any other sort of industry.

K20

the caucasian people move away and take all of the resources with them.

Oh yes, it's white man's fault that Detroit is bankrupt. I should have known, every problem is white man's fault. Seriously dude, how the f*ck can the white people take all the resources and leave the city bankrupt. The city was built on manufacturing. So I issue is the companies moving elsewhere to save money.

owners of manufacturing and governments aren't all white. factories are owned by corporations who moved them to cheaper places, to save money. two reason why they would move. first is because they're just greedy and need larger profits. or they are in difficulty and need to save the company, and only way to do it is to move else where.

its the same with us. we live in a nice area, but if prices of living in this area go up, we just pack and move to somewhere where we can work efficiently and costs are good for living.

RoadRunner71

Why isn't there a Fallout game set in Detroit yet? They don't even have to nuke the city, it already looks that way.

QUOTE (Tycek)

Quite ironic how they foreseen the future of Detroit back in the '80s. Sad that nobody saw that and did something before it was too late.

In the 80s, everyone's outlook on the future was bleaker than it is today. Crime rates were at an all-time high and they were in the middle of the worst recession before this one. Most of the USA did a turnabout on that front, but somehow Detroit missed the train.

My opinion: the city is too invested in the auto industry. Too single-minded. I live near a town in Minnesota that I like to call our state's mini-Detroit. Austin has two things: Hormel and rampant meth addiction. The company won't let any other industries move in to town and it has a stranglehold on the local economy. The city of 30,000 people hasn't grown since the 1950s (aside from all the SPAM-based attractions). There's also an abundance of illegal immigrants and non-English speaking workers more than willing to work for peanuts, ensuring that no one of any actual economic worth actually wants to live or work there.

The big three moving out may be a blessing in disguise. Manufacturing alone can no longer support a sizable city. If they continue to go down that route, they may stabilize but Detroit will probably continue to shrink until it's no longer considered a major city. One might wonder if their geographic location would even be favorable to any other sort of industry.

They could try an industrial reconversion to more modern industrial sectors, like has been doing where I live (a former traditional industrial place which was heavily affected by the 1970s industrial crisis). The problem of the newer industrial sectors is that they don't give that much jobs as the traditional ones give.Or they could just bring the industry back instead of moving them to other countries

acmilano

Ingham County Circuit Court Judge Rosemarie Aquilina enjoined Gov. Snyder and Orr from any further action on the filing July 19, during a hearing on three lawsuits by retirees. Another hearing on their ongoing cases is to be held July 22 at 9 a.m. in Judge Aquilina’s court in Mason, MI. State Attorney General Bill Schuette has appealed her ruling. - See more at: http://voiceofdetroi...h.vkRfleD9.dpuf

the caucasian people move away and take all of the resources with them.

Oh yes, it's white man's fault that Detroit is bankrupt. I should have known, every problem is white man's fault. Seriously dude, how the f*ck can the white people take all the resources and leave the city bankrupt. The city was built on manufacturing. So I issue is the companies moving elsewhere to save money.

owners of manufacturing and governments aren't all white.

That's what I'm trying to say, but that other bloke somehow thought it was because of white people.